Comparison of IFRSs (Part I) and Canadian GAAP (Part V)

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1 Comparison of IFRSs (Part I) and Canadian GAAP (Part V) Introduction as of December 31, 2009 This comparison has been prepared by the staff of the Accounting Standards Board (AcSB) and has not been approved by the AcSB. Publicly accountable enterprises are required to adopt International Financial Reporting Standards (IFRSs) set out in Part I of the CICA Handbook Accounting (Handbook) for interim and annual financial statements relating to fiscal years beginning on or after January 1, Other enterprises might also elect to adopt IFRSs. To assist those affected become familiar with differences between the Canadian standards applied before and after the changeover to IFRSs, the attached document provides a comparison between the more significant aspects of IFRSs and the Canadian pre-changeover accounting standards set out in Part V of the Handbook. The comparison is not comprehensive and does not attempt to cover all the similarities and differences between the two sets of standards. The comparison is intended to help users obtain an overview of IFRSs to assist in determining which standards are most likely to affect their future transactions. Once the user determines from the comparison which individual IFRSs have the greatest effect, they should consult the text of IFRSs themselves to understand fully the implications of applying and preparing financial statements in accordance with IFRSs. This comparison should not be used for preparing financial statements. IFRSs include International Financial Reporting Standards (IFRSs) 1 to 9, International Accounting Standards (IAS) 1 to 41, and all pronouncements issued by the IFRS Interpretations Committee (formerly the International Financial Reporting Interpretations Committee or IFRIC) and by its predecessor the Standing Interpretations Committee (SIC). This comparison includes all IFRSs, as well as all Handbook Sections and Guidelines in Part V, issued as at December 31, Effective dates of some standards and interpretations might be after December 31, In some cases, when an enterprise has a choice between the existing standard and the new standard up to and including the date of transition to IFRSs, both choices have been included in the comparison. IFRSs are designed primarily to apply to profit-oriented enterprises, so IFRSs do not have corresponding standards for the Handbook Sections on not-for-profit organizations (NFPOs). This comparison is generally organized in the order of the IFRS numbering, with Handbook Sections with no IFRS equivalent included at the end. Abstracts of Issues Discussed by the Emerging Issues Committee (EIC Abstracts) are included when significant. FOR FULL TEXT OF STANDARDS Page 1 of 130

2 IFRSs and the pre-changeover accounting standards set out in Part V of the Handbook are based on conceptual frameworks that are substantially the same. With some exceptions, they cover much the same topics and reach similar conclusions on many issues. The style and form of IFRSs are generally quite similar to Handbook Sections; for example, they highlight the principles and use similar language. Individual IFRSs and Handbook Sections are of similar length and depth of detail. The complete sets of standards are also similar in length. Both the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) have active standard-setting projects in process. In a number of cases, this work-in-process should be considered when transitioning to IFRSs. The AcSB had been adopting converged standards agreed to by the IASB and FASB into Part V as those standards were adopted by the IASB. However, as 2011 approaches, in some cases, the AcSB has required new converged standards to have a mandatory effective date of January 1, 2011, with earlier application permitted. At the top of each section, under Current Developments, the comparison notes whether there is a project in process or other factors that could affect an enterprise s transition to IFRSs. If users are affected by the standard in question, they are advised to review the project pages on the web sites of the appropriate standard setter to determine the progress of the project and the affect of any revised standard. The term converged has been used in this comparison when no conflict results from applying the pre-changeover accounting standards and IFRSs (i.e., an entity could apply both sets of standards at the same time. However, in some instances, an entity may choose to apply more restrictive alternatives or additional disclosure requirements in one or the other set of standards). There will inevitably be differences at a more detailed level, as a result of different levels of guidance and different ways of expressing similar ideas. FOR FULL TEXT OF STANDARDS Page 2 of 130

3 This comparison has been updated from the July 31, 2008 version. The following table of concordance relates each International Financial Reporting Standard and Interpretation issued as of December 31, 2009 to the corresponding pre-changeover accounting standards set out in Part V of the CICA Handbook Accounting. Material no longer effective as of December 31, 2009, and hence to be withdrawn, is not included. International Financial Reporting Standards Handbook Sections Accounting EIC Abstracts Guidelines IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 2 Share-based Payment , 132, 162 IFRS 3 Business Combinations 1300, 1581, 1600, 3064 Optional adoption prior to 2011: 1582, 1601, , 14, 42, 55, 64, 66, 73, 94, 114, 119, 124, 125, 127, 137, 140, 152, 154 IFRS 4 Insurance Contracts) ,8,9 IFRS 5 Non-current Assets Held for Sale and Discontinued , 153, 161 Operations IFRS 6 Exploration for and Evaluation of Mineral Resources 3061, ,16 160, 174 IFRS 7 Financial Instruments Disclosures 3861 or 3862 IFRS 8 Operating Segments IFRS 9 Financial Instruments 3855 IAS 1 Presentation of Financial Statements 1000, 1300, 1400, 1505,1508,1510, 59, 122, , 1530, 1535, 3000, 3020, 3210, 3240,3251, 3260, 3480 IAS 2 Inventories 3031 IAS 3 has been superseded by IAS 27 and IAS 28 IAS 4 has been superseded by IAS 36 and IAS 38 IAS 5 has been superseded by IAS 1 IAS 6 has been superseded by IAS 15 IAS 7 Statement of Cash Flows 1540, , 47 IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors 1100, 1506, 3480, 3610 IAS 9 has been superseded by IAS 38 IAS 10 Events After the Reporting Period 3820 IAS 11 Construction Contracts 1505, 1508, 3031, , 78 IAS 12 Income Taxes 1300, , 136, 146, 167, FOR FULL TEXT OF STANDARDS Page 3 of 130

4 International Financial Reporting Standards Handbook Sections Accounting Guidelines EIC Abstracts 170, 171, 172 IAS 13 has been superseded by IAS 1 IAS 14 has been superseded by IFRS 8 IAS 15 has been withdrawn IAS 16 Property, Plant and Equipment 1400, 1506, 1520, 3061, 3280, , 174 IAS 17 Leases 1520, , 21, 25, 30, 46, 52, 61, 85, 97, 150 IAS 18 Revenue , 4 65, 123, 141, 142, 143, 156, 175 IAS 19 Employee Benefits IAS 20 Accounting for Government Grants and Disclosure of 1520, 3800 Government Assistance IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 22 has been superseded by IFRS 3 IAS 23 Borrowing Costs 1505, 3061, IAS 24 Related Party Disclosures , 83 IAS 25 has been superseded by IAS 39 and IAS 40 IAS 26 Accounting and Reporting by Retirement Benefit Plans , 168 IAS 27 Consolidated and Separate Financial Statements 1300, 1590, 1600, IAS 28 Investments in Associates 1300, , 165 IAS 29 Financial Reporting in Hyperinflationary Economies 1651 IAS 30 has been superseded by IFRS 7 IAS 31 Interests in Joint Ventures 1300, 3055, IAS 32 Financial Instruments: Presentation 1300, 3861 or , 70, 74, 75, 94, 96, 148, 149, , 40, 50, 155, 170 IAS 33 Earnings per Share 3500 IAS 34 Interim Financial Reporting 1505, 1751, 3461, 3870 IAS 35 has been superseded by IFRS 5 IAS 36 Impairment of Assets 1581, 3025, 3051, 3061, 3064, 3063, , 64, 129, 133, 136, 152, 164, 174 IAS 37 Provisions, Contingent Liabilities and Contingent Assets 1000, 1508, 3110, 3280, 3290, , 134, 135, 159 IAS 38 Intangible Assets 1581,3061, , 86, 118 IAS 39 Financial Instruments: Recognition and Measurement 1300, 1651, 3020, 3025, 3855, , 14, 18 39, 88, 96, 101, 164, 166, 169, 173 IAS 40 Investment Property 3061 IAS 41 Agriculture FOR FULL TEXT OF STANDARDS Page 4 of 130

5 IFRIC-1 Interpretations of International Financial Reporting Standards Changes in Existing Decommissioning, Restoration and Similar Liabilities (IAS 1, IAS 8, IAS 16, IAS 23, IAS 36, IAS 37) Handbook Sections 3110 Accounting Guidelines EIC Abstracts IFRIC-2 Members Shares in Co-operative Entities and Similar Instruments (IAS 32, IAS 39) 3861 or 3863 IFRIC-3 has been withdrawn IFRIC-4 Determining whether an Arrangement Contains a Lease (IAS 8, IAS 16, IAS 17, IAS ) IFRIC-5 Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds (IAS 8, IAS 27, IAS 28, IAS 31, IAS 37, IAS 39) IFRIC-6 Liabilities Arising from Participating in a Specific Market Waste Electrical and Electronic Equipment (IAS 8, IAS 37) IFRIC-7 Applying the Restatement Approach under IAS 29 Financial Reporting in 1651 Hyperinflationary Economies IFRIC-8 WITHDRAWN - incorporated into IFRS 2 amendments effective January 1, 2010) 3870 IFRIC-9 Reassessment of Embedded Derivatives (IAS 39) 3855 IFRIC-10 Interim Financial Reporting and Impairment (IAS 39, IFRS 1) 1751, 3064, 3855 IFRIC-11 (WITHDRAWN - incorporated into IFRS 2 amendments effective January 1, 2010) 3870 IFRIC-12 Service Concession Arrangements 1400, 3061, 3065, 3280, 3400, 3800, 3855 IFRIC-13 Customer Loyalty Programmes (IAS 8, IAS 18, IAS 37) IFRIC-14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and 3461 their Interaction IFRIC-15 Agreements for Construction of Real Estate 3400 IFRIC-16 Hedges of a Net Investment in a Foreign Operation (IAS 8, IAS 21, IAS 39) 1651, 3865 IFRIC-17 Distribution of Non-cash Assets to Owners 1535, 3831 IFRIC-18 Transfers of Assets from Customers 1000, 3831 IFRIC-19 Extinguishing Financial Liabilities with Equity Instruments 3855 SIC-7 Introduction of the Euro (IAS 21) SIC-10 Government Assistance No Specific Relation to Operating Activities (IAS 20) 3800 SIC-12 Consolidation Special Purpose Entities (IAS 27) , 163 SIC-13 Jointly Controlled Entities Non-Monetary Contributions by Venturers (IAS 31) 3055, 3831 SIC-15 Operating Leases Incentives (IAS 17) FOR FULL TEXT OF STANDARDS Page 5 of 130

6 SIC-21 Income Taxes Recovery of Revalued Non-Depreciable Assets (IAS 12, IAS 16) 3061, 3465 SIC-25 Income Taxes Changes in the Tax Status of an Entity or its Shareholders (IAS 12) 3465 SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease (IAS 1, 3065, 3400 IAS 17, IAS 18) SIC-29 Service Concession Arrangements: Disclosures (IAS 1) 1505, 3061, 3065, 3280, 3290 SIC-31 Revenue Barter Transactions Involving Advertising Services (IAS 18) 3400 SIC-32 Intangible Assets Web Site Costs (IAS 38) 3061, , 118 FOR FULL TEXT OF STANDARDS Page 6 of 130

7 FRAMEWORK FOR THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS Current developments: The IASB has a joint project with the FASB to develop a common conceptual framework. The IASB Framework applies to general purpose financial statements of commercial, industrial and business reporting entities, whether in the private or public sectors. Scope FINANCIAL STATEMENT CONCEPTS, Section 1000, also applies to not-for-profit organizations. Separate accounting standards apply to most public sector entities. Objective of financial statements The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. Financial statements also show the results of the stewardship of management, or the accountability of management for the resources entrusted to it. The objective of financial statements is to communicate information that is useful to investors, members, contributors, creditors and other users in making their resource allocation decisions and/or assessing management stewardship. Underlying assumptions Financial statements are prepared on the accrual basis such that the effects of transactions and other events are recognized when they occur and are reported in the periods to which they relate. Financial statements are normally prepared on the assumption that an entity is a going concern and will continue in operation for the foreseeable future. Items recognized in financial statements are accounted for in accordance with the accrual basis of accounting. Financial statements are prepared on the assumption that the entity is a going concern, meaning that it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of operations. Qualitative characteristics of financial statements Four principal qualitative characteristics are: understandability; relevance; reliability; and comparability. Section 1000 cites the same four principal qualitative characteristics. FOR FULL TEXT OF STANDARDS Page 7 of 130

8 Elements of financial statements An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise. Assets Liabilities Assets are economic resources controlled by an entity as a result of past transactions or events and from which future economic benefits may be obtained. A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. Liabilities are obligations of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future. Equity/net assets Equity is the residual interest in the assets of the enterprise after deducting all its liabilities. Equity is the ownership interest in the assets of a profit-oriented enterprise after deducting its liabilities. While equity of a profit-oriented enterprise in total is a residual, it includes specific categories of items, for example, types of share capital, contributed surplus and retained earnings. In the case of a non-profit organization, net assets, sometimes referred to as equity or fund balances, is the residual interest in its assets after deducting its liabilities. Net assets may include specific categories of items that may be either restricted or unrestricted as to their use. Income/revenues/gains Income is increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. Revenues are increases in economic resources, either by way of inflows or enhancements of assets or reductions of liabilities, resulting from the ordinary activities of an entity. Gains are increases in equity/net assets from peripheral or incidental transactions and events affecting an entity and from all other transactions, events and circumstances affecting the entity, except those that result from revenues or equity/net assets contributions. FOR FULL TEXT OF STANDARDS Page 8 of 130

9 Expenses/losses Expenses are decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Expenses are decreases in economic resources, either by way of outflows or reductions of assets or incurrence of liabilities, resulting from an entity's ordinary revenue-generating or service delivery activities. Losses are decreases in equity/net assets from peripheral or incidental transactions and events affecting an entity and from all other transactions, events and circumstances affecting the entity, except those that result from expenses or distributions of equity/net assets. An item that meets the definition of an element should be recognized if: it is probable that any future economic benefit associated with the item will flow to or from the enterprise; and the item has a cost or value that can be measured with reliability. The Framework cites four measurement bases: historical cost; current costs; realizable value; present value; It notes that historical cost is the most commonly adopted basis, usually combined with other bases. Recognition Measurement The recognition criteria are as follows: for items involving obtaining or giving up future economic benefits, it is probable that such benefits will be obtained or given up; and the item has an appropriate basis of measurement and a reasonable estimate can be made of the amount involved. Section 1000 states that financial statements are prepared primarily using the historic cost basis of accounting. However, other bases are used in limited circumstances, including: replacement cost; realizable value; and present value. Capital and capital maintenance The IASB Framework describes concepts of financial and physical capital maintenance without prescribing that a particular concept should apply. Section 1000 specifies that financial statements are prepared with capital maintenance measured in financial terms. FOR FULL TEXT OF STANDARDS Page 9 of 130

10 IFRS 1, FIRST-TIME ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS IFRS 1 deals with the manner in which an entity applies IFRSs when it adopts them as its basis of accounting for the first time. It grants limited exemptions to the normal basis of application in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, in specified areas and prohibits retrospective application in some areas where that would require judgments by management about past conditions after the outcome of a particular transaction is already known. It requires disclosures explaining how the transition from previous GAAP to IFRSs affected reported financial position, financial performance and cash flows. Exemptions are provided from disclosing information about changes in accounting policies in accordance with IAS 8 in the period of adopting IFRSs. Current developments: None. Overview There is no Handbook Section corresponding to IFRS 1. FOR FULL TEXT OF STANDARDS Page 10 of 130

11 IFRS 2, SHARE-BASED PAYMENT IFRS 2 applies to all share-based payment transactions, whether or not the entity can identify specifically some or all of the goods or services received, including those that are equity settled and cash settled and transactions in which the entity receives or acquires goods or services and the terms of the arrangements provide either the entity or the supplier with a choice of whether the entity settles the transaction in cash or by issuing equity instruments (unless acquired as part of the net assets acquired in a business combination). It does not apply to share-based payment transactions in which goods or services are received or acquired under a contract to buy or sell a non-financial item that can be settled net in cash or another financial instrument or by exchanging financial instruments, as referred to in IAS 32, Financial Instruments: Presentation, and IAS 39, Financial Instruments: Recognition and Measurement. IFRS 2 has no exception for the recognition of an expense when there is a discount for employees under a share purchase plan. Current developments: None. Scope STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS, Section 3870, applies to stock-based compensation and other stock-based payments made in exchange for goods and services. It applies to transactions, including nonreciprocal transactions, in which an entity grants shares of common stock, stock options, or other equity instruments, or incurs liabilities based on the price of common stock or other equity instruments. It does not apply to equity instruments granted as part of a purchase consideration in a business combination, or to related party transactions other than stockbased compensation with a principal shareholder. Section 3870 has an exception for the recognition of an expense when an employee share purchase plan provides a discount to employees that does not exceed the per share amount of share issuance costs that would have been incurred to raise a significant amount of capital by a public offering and is not extended to other holders of the same class of shares. Equity-settled share-based payment transactions Equity-settled share-based payment transactions are measured at the fair value of the goods or services received, unless that cannot be estimated reliably, in which case the fair value of the equity instruments granted is used. Measurement Section 3870 generally permits measurement to be at the fair value of the goods or services received, or at the fair value of the equity instruments granted, whichever is more reliably measurable. When measuring stock options for private companies, Section 3870, unlike IFRS 2, does not require that volatility of the stock over the expected life of the stock option be considered. FOR FULL TEXT OF STANDARDS Page 11 of 130

12 Employees and others providing similar services An entity should measure the fair value of the services received by reference to the fair value of the equity instruments granted because, typically, it is not possible to estimate reliably the fair value of the services received. Equity instruments awarded to employees and the cost of the services received are measured and recognized based on the fair value of the equity instruments. Transactions with parties other than employees With respect to such transactions, there is a rebuttable presumption that the fair value of the goods and services can be estimated reliably Such transactions should be accounted for based on the fair value of the consideration received or the fair value of the equity instruments, or liabilities incurred, whichever is more reliably measurable. Transactions in which services are received If the equity instruments granted vest immediately, in the absence of evidence to the contrary, the entity should presume that the services rendered have been received, and should recognize them in full. If they do not vest until the counterparty completes a specified period of service, the entity should presume that the services will be received in the future and account for them as they are rendered during the vesting period. If the options vest in instalments, each tranche is to be considered a separate award with the compensation cost amortized accordingly. If there is a change in the requisite service period, the cumulative effect is recorded in the current period. The entity is required to estimate the number of equity instruments expected to vest and to revise that estimate, if necessary. The entity is not allowed to accrue compensation as if all instruments will be granted and adjust for forfeitures as they occur, which is an alternative in accordance with Section For services received from non-employees, the equity instruments should be measured at the earliest of the date at which the counterparty s performance is complete, the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or the date at which the equity instruments are granted if they are fully vested and non-forfeitable at that date. If an award vests in instalments and the fair value of the award is determined based on different expected lives for the options that vest each year, the instalments should be viewed as separate awards. Compensation for a stock-based award to employees should be recognized over the period in which the related services are rendered. Unless defined as an earlier or shorter period, the service period is presumed to extend from the grant date to the date that the award is vested. Expense recognition can never occur before the grant date, even when the grant is subject to shareholder approval and the employee has begun service prior to receiving the approval for the grant. Awards for past services are recognized in the period in which they are granted. Changes to requisite service periods are recognized prospectively from the date of change to the revised date of the requisite service period. FOR FULL TEXT OF STANDARDS Page 12 of 130

13 Modifications, cancellations and settlements No adjustment should be made to the grant date fair value of equity instruments granted for services received because of any modifications to the terms and conditions, cancellations, and settlements, unless those equity instruments do not vest because of failure to satisfy a vesting condition (other than a market condition) that was specified at the grant date. In the case of cancellation or settlement during the vesting period, amounts that would have been recognized for services received over the remaining period will be recognized immediately. Any payment made to the employee on cancellation or settlement should be accounted for as the repurchase of an equity interest, except to the extent that it exceeds the fair value of the equity instruments granted, in which case the excess should be recognized as an expense. However, if there is a liability component, the fair value of the component should be remeasured on the date of cancellation or settlement and any payment recorded as an extinguishment of debt. Any new equity instruments granted as replacement for the cancelled equity instruments should be accounted for in the same way as a modification of the original grant of equity instruments. If an entity or counterparty can choose whether to meet a non-vesting condition, the entity shall treat the entity s or the counterparty s failure to meet the nonvesting condition during the vesting period as a cancellation. A modification of the terms of an award that makes it more valuable should be treated as if it were an exchange of an original award for a new award, and the incremental value recorded as an additional cost. For settlements comprising the repurchase of equity instruments that have vested, the repurchase amount should be charged to equity, provided the amount paid does not exceed the value of the instruments repurchased (in which case the excess should be recognized as a cost). The settlement of a non-vested award for cash effectively vests the award and any excess not yet recognized should be recognized at the repurchase date. Previously recognized compensation cost is not reversed if a vested employee stock option expires unexercised. Cash-settled share-based payment transactions For such transactions, the goods and services acquired and the liability incurred are measured at the fair value of the liability. The liability is remeasured at its fair value at each reporting date and at the date of settlement, with any changes in fair value recognized in profit or loss for the period. For such transactions, compensation cost should be measured at the amount by which the quoted market value of the shares covered by the grant exceeds the option price or value specified, by reference to a market price or otherwise, subject to any appreciation limits under the plan. Compensation cost accrued during the service period should not be adjusted below zero. The offsetting adjustment should be charged or credited to compensation cost in the period in which changes in market value occur. FOR FULL TEXT OF STANDARDS Page 13 of 130

14 Share-based payment transactions with choice of settlement in cash or equity instruments In such a situation, the entity should account for the transaction as a cash-settled share-based payment transaction if it has incurred a liability to settle in cash or other assets, or as an equitysettled share-based payment transaction if no such liability has been incurred. It covers both the situation where the entity has the choice of settlement and the situation where the entity itself has the right of settlement. If the counterparty has the choice of settlement, the transaction must be accounted for as a compound instrument. The accounting must reflect the substantive terms of the arrangement. If the choice is the employee s, the entity generally incurs a liability; if the choice is the entity s, it generally qualifies as an equity instrument unless the entity normally settles in cash. Share-based payment transactions among group entities (options in stock of affiliates) For share-based payment transactions among group entities when the entity receiving the goods or services is required to make the sharebased payment in its own equity shares or it has no obligation to settle the share-based payment transaction, the transaction is measured as equity settled. When a different entity receives the goods or services, than the entity settling the share-based payment, the transaction is recognized by the settling entity as equity settled only if it is settled in the entity s own equity instruments. In all other circumstances, the entity accounts for the transaction as a cash-settled share-based payment transaction. The amount recognized by the entity receiving the goods or service may be different than the amount recognized by the group. Section 3870 requires a stock-based payment based on the stock of a parent, a subsidiary or a subsidiary of the parent that requires settlement in cash or other assets to be treated as a cashsettled stock -based payment. All other stockbased payments are equity settled payments. When an entity grants options on its own shares to employees of another enterprise within the control group, they are measured at the fair value of the award at the grant date. Generally, if it is the parent that grants options in its own shares to employees of other enterprises within the control group, it is recorded as a receivable or investment in the other enterprise. If granted by the subsidiary, it is recorded as a dividend to the controlling enterprise. Disclosures IFRS 2 calls for disclosures that enable users to understand the nature and extent of share-based payment arrangements that existed during the period: how the fair value of the goods and services received, or the fair value of the equity instruments granted, during the period was determined, and the effects of share-based payment transactions on the entity s profit or loss for the period and on its financial position. It sets out some specific disclosure requirements to reflect the above, but also Section 3870 also calls for detailed disclosure, but it is not as extensive as that called for by IFRS 2. For example, it does not call for information on how fair value was measured for equity instruments, other than share options, issued during the period, Further, it does not call for additional information beyond the specific disclosures required in the Section. FOR FULL TEXT OF STANDARDS Page 14 of 130

15 states that if the information required to be disclosed does not satisfy the general requirements set out above, additional information as is necessary to satisfy them should be disclosed. FOR FULL TEXT OF STANDARDS Page 15 of 130

16 IFRS 3, BUSINESS COMBINATIONS Current developments: The AcSB issued a new standard, BUSINESS COMBINATIONS, Section 1582, that is converged with revised IFRS 3 issued by the IASB in January Section 1582 can be adopted prior to mandatory changeover to IFRSs in 2011 if the enterprise discloses that fact and it is adopted in conjunction with CONSOLIDATED FINANCIAL STATEMENTS, Section 1601, and NON-CONTROLLING INTERESTS, Section IFRS 3 applies to transactions or other events when the assets acquired and liabilities assumed constitute a business. A business is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants. A business consists of inputs and processes applied to those inputs, but outputs are not required for an integrated set to qualify as a business. IFRS 3 does not apply to: a combination of entities or businesses under common control; business combinations that result in the formation of a joint venture; or the acquisition of assets or a group of assets that does not constitute a business. Scope BUSINESS COMBINATIONS, Section 1581, applies when an enterprise acquires net assets that constitute a business or equity interests of an enterprise and obtains control. Definition of a Business, EIC 124, notes that a business is a self-sustaining integrated set of activities and assets conducted and managed for the purposes of providing a return to investors. A transferred set of activities and assets fails the definition of a business if it excludes one or more of inputs, process applied to those inputs and outputs. Section 1581 does not apply to: a transfer of assets or an exchange of equity interests between enterprises under common control; or joint ventures, unless a joint venture enters into a transaction that meets the definition of a business combination. All business combinations are accounted for by applying the acquisition method (i.e., by recognizing the acquiree s identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree at their fair values as at the acquisition date, and also recognizing goodwill or gain from a bargain purchase price.) An acquisition can occur without the transfer of consideration such as when the acquiree repurchases a sufficient number of its own shares for an existing investor to obtain control. Method Section 1582 is converged with IFRS 3. Section 1581 accounts for business combinations using the purchase method. The purchase method does not address a change in control resulting from the acquiree repurchasing its own shares. Section 1582 is converged with IFRS 3. FOR FULL TEXT OF STANDARDS Page 16 of 130

17 Cost of the business combination The cost of a business combination is the fair value, at the acquisition date, of assets transferred, liabilities incurred (including contingent consideration), and equity instruments issued by the acquirer in exchange for control of the acquiree. Acquisition-related costs, such as finder s fees and legal fees, are expensed.shares issued as consideration are measured based on fair value at the acquisition date. The acquirer would recognize liabilities for terminating or reducing the activities of the acquiree as part of allocating the cost of the combination only when the acquiree has, at the acquisition date, an existing liability for such restructuring cost. No restructuring cost of the acquirer would be recognized. When the initial accounting for a business combination can only be determined provisionally, those values should be used and adjustments to those values should be recognized on a retrospective basis, if new information becomes available within the measurement period that ends on the earlier of the date the necessary information is obtained about the facts and circumstances at the date of acquisition or one year from the acquisition date, after which all adjustments are recognized in net income. Section 1581 requires that the cost of a business combination be determined by the fair value of the consideration given or the acquirer s share of the fair value of the net assets or equity instruments acquired, whichever is the more reliably measurable. Direct costs, ones that would not be incurred without the business combination, are recognized as costs of the business combination. In business combinations effected by using the issuance of shares, the fair value of the shares is based on their market price over a reasonable period before and after the date the terms of the business combination are agreed to and announced. Certain restructuring activities of the acquirer may qualify for recognition on acquisition as a liability if specified criteria in Liability Recognition for Costs Incurred on Purchase Business Combinations, EIC-114, are met. Adjustments to the Purchase Equation Subsequent to the Acquisition Date, EIC-14, states that initial allocations will require adjustment subsequently and should be allowed. EIC-14 does not impose a time limit for the completion of the allocation process but does note that only in the most unusual circumstances should the period extend beyond one year. Section 1582 is converged with IFRS 3. Costs of registering and issuing shares as consideration for an acquisition Costs to issue debt or shares are recognized in accordance with IAS 32, Financial Instruments: Presentation, and IAS 39, Financial Instruments: Recognition and Measurement. Section 1581 treats such costs as a capital transaction. Section 1582 requires that costs to issue debt or shares be recognized in accordance with CAPITAL TRANSACTIONS, Section 3610, and FINANCIAL INSTRUMENTS RECOGNITION AND MEASUREMENT, Section FOR FULL TEXT OF STANDARDS Page 17 of 130

18 Contingent consideration If part of the purchase consideration is contingent on a future event, IFRS 3 requires the fair value at the acquisition date to be included as part of the cost. Section 1581 requires that when the amount of any contingent consideration can be reasonably estimated at the date of acquisition and the outcome of the contingency can be determined beyond a reasonable doubt, the contingent consideration should be recognized at that date as part of the cost of the purchase. Otherwise, the additional cost is not recognized until the contingency is resolved or the amount is determinable. The contingency should be disclosed. Section 1582 is converged with IFRS 3. Acquisition in stages In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisitiondate fair value and recognize the resulting gain or loss, if any, in profit or loss. CONSOLIDATED FINANCIAL STATEMENTS, Section 1600, requires a parent s investment in a subsidiary acquired in two or more purchases to be accounted for as a step-by-step purchase. Each acquisition is accounted for at its cost and is not remeasured when the acquirer purchases an additional interest. Sections 1582 and 1601 are converged with IFRS 3. Measurement of non-controlling interests The acquirer recognizes the acquiree's assets, liabilities and contingent liabilities that meet the recognition criteria set out in the standard at their fair values at the acquisition date, and has the option of measuring any non-controlling interest in the acquiree at the non-controlling interest's proportionate share of either the fair value of the business or the fair value of the acquiree s identifiable assets. Section 1600 requires non-controlling interests to be reflected in terms of carrying values recorded in the accounting records of the subsidiary company. Sections 1582 and 1602 are converged with IFRS 3. FOR FULL TEXT OF STANDARDS Page 18 of 130

19 Bargain purchase If the net of the assets acquired and the liabilities assumed exceed the consideration transferred, the excess is recognized in net income. If such an excess arises, the identification and measurement of the related identifiable assets, liabilities and contingent liabilities, and the measurement of the cost of the combination should be reassessed, and any excess remaining after that reassessment should be recognized immediately in profit or loss. Disclosures are required describing the reasons why the transaction resulted in a gain. Section 1581 requires that the excess of the fair value of acquired net assets over the cost of the purchase be allocated as a pro rata reduction of the amounts assigned to all of the acquired assets, except financial assets (other than investments accounted for by the equity method), assets to be disposed of by sale, future income tax assets, prepaid assets relating to employee future benefit plans, and any other current assets, to the extent the excess is eliminated. Any remaining excess should be presented as an extraordinary gain. Section 1582 is converged with IFRS 3. Amortization period and method for goodwill Goodwill acquired in a business combination should not be amortized. Instead, it should be tested for impairment annually, or more frequently if there is evidence of impairment, in accordance with IAS 36, Impairment of Assets. Similarly, GOODWILL AND INTANGIBLE ASSETS, Section 3064, does not permit amortization of goodwill. It is tested for impairment at a level of reporting referred to as a reporting unit. A goodwill impairment loss should be recognized when the fair value of goodwill is less than its carrying amount. Such loss is not reversible if the fair value subsequently increases. Disclosure IFRS 3 requires disclosures that enable users to evaluate the nature and financial effect of business combinations that were effected during the period or after the reporting period but before the financial statements were authorized for issue. Many of the disclosures correspond to those required by Section Additional disclosures required by IFRS 3 include: the acquisition date; a description of, and the amount of contingent consideration or indemnified assets recognized at the acquisition date and an estimate of the range of outcomes ; the amount of the acquiree s profit or loss Section 1581 requires many, but not all of the disclosures required by IFRS 3 for business combinations completed during the period and, to the extent practical, those completed after the balance sheet date but before the financial statements are completed. Additional disclosures required by Section 1581 include: information relating to any purchase price allocation that has not been finalized; contingent payments, options or commitments specified in the acquisition agreement and the accounting treatment that will be followed should any such FOR FULL TEXT OF STANDARDS Page 19 of 130

20 since the acquisition date included in the consolidated statement of comprehensive income, unless considered impractical, in which case that fact and an explanation should be disclosed; amounts recognized at the acquisition date for each major class of the assets acquired, and liabilities assumed; a description of the nature, timing and uncertainties of contingent liabilities recognized and, if not recognized because fair value cannot be reliably measured, disclosure of the nature of the liability, an estimate of its financial effect and the reason it cannot be reliably measured; a qualitative description of the factors that make up the goodwill recognized, including any intangible assets that did not qualify for separate recognition, the amount of any excess (bargain purchase option or negative goodwill) recognized in profit or loss and the reason the transaction resulted in a gain; and the total amount of goodwill that is expected to be deductible for tax purposes. IFRS 3 requires disclosure of specific information to enable users to evaluate the financial effects of adjustments recognized in the current reporting period that relate to business combinations that occurred in the current or previous reporting periods. IAS 36 requires disclosure of specific information to enable users to evaluate changes in the carrying amount of goodwill in the period. contingency occur; a condensed balance sheet disclosing the amount assigned to each major class of assets acquired and liabilities assumed; and the total amount assigned and the amount assigned to any major intangible asset class, separately for intangible assets subject to amortization and those not subject to amortization. Section 1581 does not require such disclosure. Section 1582 is converged with IFRS 3. Section 3064 also requires disclosure of information relating to changes in the carrying amount of goodwill, but not to the degree required in IFRS 3. FOR FULL TEXT OF STANDARDS Page 20 of 130

21 IFRS 4, INSURANCE CONTRACTS Current developments: The IASB has a joint project with the FASB to develop a common standard on Insurance Contracts. IFRS 4 applies to insurance (including reinsurance) contracts that an entity issues and reinsurance contracts that it holds, and financial instruments that an entity issues with a discretionary participation feature. It does not address other aspects of accounting by insurers, such as financial assets held and financial liabilities issued by insurers, except for a transitional provision on redesignation of financial assets. IFRS 4 exempts an insurer temporarily from some requirements of other IFRSs. It also: precludes recognition of catastrophe and equalization provisions; requires an entity to assess the adequacy of its insurance liabilities based on current estimates of future cash flows, and recognize any deficiency in profit or loss; precludes offsetting of insurance liabilities against related reinsurance assets; and precludes presentation of discretionary participation features separately from liabilities and equity. IFRS 4 requires disclosure of: information that identifies and explains the amounts in the insurer s financial statements arising from insurance contracts. information that helps users understand the amount, timing and uncertainty of future cash flows from insurance contracts. Scope Disclosure LIFE INSURANCE ENTERPRISES SPECIFIC ITEMS, Section 4211, ACCOUNTING GUIDELINE AcG-3, Financial Reporting by Property and Casualty Insurance Companies, ACCOUNTING GUIDELINE AcG-8, Actuarial Liabilities of Life Insurance Enterprises Disclosure, and ACCOUNTING GUIDELINE AcG-9, Financial Reporting by Life Insurance Enterprises, deal more extensively with aspects of accounting by insurance enterprises than IFRS 4. Section 4211 requires detailed disclosure on life insurance investments including nature and significance of reinsurance and retrocession transactions and, for stock life insurance companies, that all disclosures separately detail the income derived from participating and nonparticipating business. FOR FULL TEXT OF STANDARDS Page 21 of 130

22 IFRS 5, NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS Current developments: The IASB has a project to amend the definition of a discontinued operation. IFRS 5 specifies the accounting for non-current assets (disposal groups) held for sale or held for distribution to owners in their capacity as owners, and the presentation and disclosure of discontinued operations. The measurement provisions do not apply to assets covered by other specified IFRSs. Scope Assets held for sale The scope of DISPOSAL OF LONG-LIVED ASSETS AND DISCONTINUED OPERATIONS, Section 3475, is converged with IFRS 5, except that Section 3475 scope is non-monetary long-lived assets versus noncurrent assets. Non-current assets are classified as current assets when they are held for sale or held for distribution to owners in their capacity as owners. A non-current asset is regarded as held for sale if its carrying amount will be recovered principally through a sale transaction, rather than through continuing use. When the entity is committed to a sale that results in a loss of control but maintains a non-controlling interest after the sale, all the assets and liabilities of the subsidiary are classified as held for sale. The asset must be available for immediate sale or distribution to owners in its present condition, and the sale or distribution must be highly probable. Assets that are to be exchanged may be classified as held for sale when the exchange has commercial substance. Assets that are to be abandoned are not classified as held for sale. Assets held for sale or held for distribution are no longer depreciated. They are measured at the lower of fair value less costs to sell or distribute and carrying amount. Section 3475 is converged with IFRS 5, except that reclassification to a current asset is only allowed when the enterprise has sold the assets prior to the date of completion of the financial statements and the proceeds of the sale will be realized within a year of the date of the balance sheet, or within the normal operating cycle if that is longer than a year. Section 3475 requires that a long-lived asset disposed of other than by sale, such as a distribution to owners in a spin-off, to continue to be classified as held and used until it is disposed of. Section 3475 is converged with IFRS 5. Section 3475 is converged with IFRS 5. Section 3475 is converged with IFRS 5 with assets held for sale. However, a long-lived asset to be distributed to owners in a spin-off continues to be depreciated until the asset is distributed. In addition, non-monetary, nonreciprocal transfers to owners are measured at the carrying amount of the non-monetary assets or liabilities transferred as required by NON- MONETARY TRANSACTIONS, Section 3831, with impairment losses being recognized FOR FULL TEXT OF STANDARDS Page 22 of 130

23 Discontinued operations in accordance with IMPAIRMENT OF LONG- LIVED ASSETS, Section A discontinued operation is a component of an entity that either has been disposed of or is classified as held for sale. It may be a major line of business or geographical area of operations, or a subsidiary that was acquired exclusively for resale. Discontinued operations are presented separately in the statement of comprehensive income and the statement of cash flows. Results of the statement of comprehensive income for prior periods are restated to segregate continuing and discontinuing assets and liabilities. The first part of the definition in Section 3475 is converged with IFRS 5. However, the second part is less restrictive, specifying that it may be a reportable segment, operating segment, reporting unit, subsidiary, asset group, or operation without long-lived or other assets. Section 3475 requires separate presentation in the income statement, but does not require disclosure of information on cash flows from discontinuing operations. Section 3475 requires presentation of pre-tax profits on the face of the income statement, which is not required by IFRS 5 (although it is not precluded). Section 3475 contains no similar requirement. Disclosure Disclosure consists of the following: revenue, expenses and pre-tax profit; gain or loss recognized on measurement to fair value, less costs to sell; description of asset, and facts and circumstances leading to disposal; segment in which the asset is reported under; and net cash flows attributable to the operating, investing and financing activities of discontinued operations which is not required by Section Disclosure consists of the following: revenue and pretax profit or loss; gain or loss on disposal and the caption in the income statement that it is included in, if not presented separately on the income statement; gain or loss from an increase or write-down to fair value less cost to sell and the caption in the income statement that it is included in, if not presented separately on the income statement; description of asset, and facts and circumstances leading to disposal if longlived asset was disposed of other than by sale; if a long-lived asset is disposed of by sale or is classified as held for sale, the expected manner and timing of the disposal and if not separately presented on the face of the balance sheet, the carrying amount(s) of the major classes of assets and liabilities included as part of a disposal group; and FOR FULL TEXT OF STANDARDS Page 23 of 130